Why Should You Buy a Term Life Insurance Plan?
Why Should You Buy a Term Life Insurance Plan?
2/7/23 9:05 AM
Term insurance is a type of life insurance policy that provides coverage for a specific period of time in exchange for a set premium. If an unfortunate event occurs during this period, the insurer will provide a guaranteed payout to the nominee, compensating for the loss of the policyholder's income.
One of the key benefits of term insurance is its affordability. Unlike other types of insurance policies, term insurance does not include any investment component. The entire premium goes towards covering the risk of death, making it a cost-effective way to provide financial support for dependents in the event of an unexpected loss. This makes it accessible to people with a wide range of budget.
What is a Term Insurance Policy?
Your policy is a legally binding agreement between you and the insurance company, in which you agree to pay the required premiums and the insurer agrees to provide a death benefit to your beneficiary in the event of a valid claim.
How Does Term Insurance Plan Works?
A term life insurance policy is a legal agreement between you and an insurance company. As the policyholder, you pay a pre-decided premium to the insurer, and in return, they pay a fixed death benefit to your nominee in the event of a contingency while the policy is in force.
Term insurance exists as a guaranteed cash payout in the form of a sum assured by the insurer to take care of the needs of your loved ones comfortably should the unfortunate happen.
As a rule of thumb, it is prudent to buy term insurance early on in life to get a good sum assured for lesser premium. If you buy term insurance at an older/later age, you pay a higher premium and do keep in mind this premium is fixed for the entire term until the expiry. Following are the steps involved in buying a term insurance policy:
- Proposal Form: To apply for a term life insurance policy, you need to fill out a proposal form disclosing information such as your medical history, current health conditions, lifestyle habits, hobbies, age, annual income, and profession.
- Select Premium Amount: The insurer uses this information to assess the probability of a life claim being made and to determine the premium amount.
- Assess Your Requirement: When deciding on a term life insurance policy, it is important to consider your coverage needs, policy term, premium payment mode, payout option, and any riders you may want to add.
- Review the Quote: Once you have reviewed the premium quote, you can make the policy payment and receive coverage.
- Covering Your Insurance Needs: Some term life insurance policies also allow you to increase coverage at defined intervals or at life milestones.
- Choose a Nominee: Additionally, you must assign a nominee, who should be an immediate family member who will take care of your dependents.
Why You Should Consider Buying a Term Insurance Plan?
- Affordability: Term life insurance is typically much cheaper than permanent life insurance, such as whole life or universal life. This is because term life insurance only covers you for a specific period of time, whereas permanent life insurance covers you for your entire life. This means that term life insurance premiums are generally much lower than those of permanent life insurance.
- Coverage for specific needs: Term life insurance is ideal for those who only need coverage for a specific period of time, such as the years when their children are dependent on them financially or when they have a mortgage to pay off. This type of insurance is also a good option for those who are concerned about their beneficiaries' financial future, in case of unexpected death.
- Flexibility: Term life insurance policies often come with the option to convert to a permanent life insurance policy, which gives you the flexibility to choose the coverage that best fits your changing needs. Additionally, many term life insurance policies come with a return of premium option, which allows you to get your premiums back if you outlive the term of your policy.
- Tax benefits: Premiums paid for a term life insurance policy are tax-deductible, which can help to lower your overall tax bill. Additionally, the death benefit paid out to your beneficiaries is typically tax-free, which can help to provide financial security for your loved ones in the event of your death.
- Peace of mind: Having a term life insurance policy in place can provide peace of mind for you and your loved ones. Knowing that your loved ones will be financially secure in the event of your death can bring a sense of security and comfort to everyone involved.
In conclusion, a term life insurance plan is an affordable and flexible option that can provide coverage for specific needs, tax benefits, and peace of mind for you and your loved ones. It is an essential part of a comprehensive financial plan and should be considered by anyone looking to protect their family's future. It is always a wise decision to consult a financial advisor before deciding on a life insurance policy.
Aastha Mestry - Portfolio Manager
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.